Bankers, behaving badly, backing coal

October 1, 2013

The big Wall Street banks say all the right thing about sustainability and corporate responsibility but investment bankers are, above all, driven by the deal. Turning away business is just not part of their skill set, or mind set.

That’s the best explanation that I can come up with for the fact that Bank of America, Goldman Sachs, Credit Suisse and Deutsche Bank, along with three India-based banks, are managing a share offering for Coal India, a company with an environmental and human rights record that is, at best, spotty.

Their decision to do so is the topic of my story today at Guardian Sustainable Business. Here’s how it begins:

They’re also doing so despite their own rhetoric about sustainability and corporate responsibility.

I hope you take the time to read the story. It’s tough, I think, but it’s a reflection of the difficulty that the corporate-responsibility and environmental movements have had gaining traction on Wall Street. Most of the big financial institutions have made “green” commitments, and that’s great, but if they continue to finance fossil fuels on a grand scale, they could wind up doing more harm than good.

None of the banks would talk to me on the record for the story, and I imagine that if they did, they would say, correctly, that burning fossil fuels is perfectly legal in India, and everywhere else, as is dumping emissions into the atmosphere at no cost. That’s a political problem, and not a Wall Street problem, they could argue. True enough. But if the banks believe what they say about climate change and the environment, they should then make their voices heard more forcefully in the climate debate in Washington and elsewhere.

Until they do, their rhetoric about sustainability will remain hollow.

Comments

Let’s hope that if the investment goes ahead, that today’s world carbon bubble bursts all over their profits.

This forecast relates to
(1) the predicted fall in the value of global fossil fuel reserves (much of which will have to be left in the ground, due to the high cost of capturing the CO2), and
(2) the likely fall in thermal coal prices, partly due to the increased use of renewables, partly to the falling cost of gas, and partly to the high associated costs (again relating to CO2 capture) of burning coal for power generation.

There is not currently any requirement in law or regulation, anywhere in the world, regarding CO2 capture and storage. The US EPA has proposed a regulation which would apply to new coal plants in the US, but it is almost certain to be challenged in court, primarily on the basis that the technology to capture and store CO2 has not been demonstrated at commercial scale. US EPA is also expected to propose regulations for existing coal plants in the US next year, though that proposed regulation would also certainly be challenged in the courts, both because the technology has not been demonstrated on commercial scale for plants designed to include its use and because the existing plants were not designed to include its use, greatly complicating potential application and adversely impacting both installation and operating costs.

India and China, among others, will continue to rapidly expand their coal generation indefinitely. Fueling that expansion will require development of mining infrastructure. That infrastructure must be financed.

Should Coal India choose to diversify into solar PV, it would also be wise to invest in massive electricity storage, to permit time-shifting of a portion of the collected PV electricity to periods when the sun does not shine. At present, the cost of the solar PV plus storage necessary to displace a baseload coal generator is prohibitive.

Should India and China decide to shift toward solar PV, they would be wise to control non-CO2 emissions from their existing coal plants to clear the skies over their collectors.

Casting a spotlight on the disconnect between investment banks’ words and actions is so valuable, and your article is fair, balanced and thoughtful.

It’s also worth noting that the Bombay Stock Exchange (BSE), where Coal India trades, signed onto the UN’s Sustainable Stock Exchange initiative last October (article here: http://bit.ly/15IMarN). As such, perhaps some of the same questions that you pose about the investment banks’ engagement with Coal India, deserve to be asked of the BSE as well.

I would say that its equally complicated for financiers, as they (like university endowments) are simply playing by the rules laid down by policy makers – i.e. there is no regulation on carbon. Turning down business would be an immediate hit to the bottom line (and another bank would surely swoop in and finance Coal India), and not investing in certain sectors within fossil fuels could also have a negative impact on portfolio performance (though, US coal stocks are taking a beating).

In essence, activists and critics are essentially asking these firms to make a moral stand since the government won’t set regulation.

I think what’s needed is to understand how Goldman, Credit Suisse, Harvard, etc. are working to reshape public policy so that we have a price on carbon, as well as how they are engaging clients and investees on diversifying their energy mixes.

PS – this forecast from the IEA should be worrisome to anyone looking at the remaining carbon budget